The Capital Markets Industry has agreed to work together in a joint strategy to enhance product uptake and listings at the Nairobi Securities Exchange (NSE) to meet the aspirational objectives of the 10-year Capital Market Master Plan (2014-2023).
The partnership brings together the National Treasury, Capital Markets Authority (CMA), NSE, Central Depository and Settlement Corporation (CDSC), the Fund Managers Association (FMA), the Kenya Association of Stockbrokers and Investment Banks (KASIB), licensed market intermediaries, and the East African Venture Capital Association.
In a joint statement to the media, the CMA Chief Executive, Mr. Paul Muthaura, MBS, and the NSE Chief Executive Mr. Geoffrey Odundo, confirmed that the capital markets industry is committed to the joint strategy to address the national concerns around low listings and overall product uptake, a situation which could adversely affect key national development goals as realization of the Kenya Vision 2030 aspirations. Under the Vision, the capital market has a key role of mobilizing savings through new products to finance big-ticket projects, especially infrastructure development.
Mr. Muthaura observed; “The CMMP set down a clear target of achieving 3-4 GEMS listing annually but this target has not been achieved despite concerted industry efforts. New products have also been introduced with low uptake wtinessed. We have agreed to come together as an industry to inform a refined strategy benefiting from broad ownership of all stakeholders to ensure that the value proposition of listing on the NSE and new capital markets products is well packaged to meet the expectations of issuers and investors”.
The industry initiative comes on the back of a recent Study conducted by CMA in April- June 2018 on Low Uptake of Capital Markets Products and Listings and the proposal by the NSE to implement a Rapid Mass Visibilities Strategy.
The study identified the key factors leading to low product uptake including; reluctance to implement innovative, business unusual measures to attract large private and public potential issuers to list at NSE; perception that other regulatory barriers still override the relatively lower cost of raising funds through the capital markets compared with bank lending rates; adverse macroeconomic environment; absence of a simplified product development, launch and subscription strategy for newer sophisticated products; emerging competition from other quick return investments such as real estate, mobile money products, and betting; reputation risk exposure for potential issuers to post-offer/listing price correction following professional valuation; and the absence of a clear action plan towards compensation/restitution of bond investors whose funds remained locked in Chase and Imperial Banks, which has dampened the confidence specifically in the corporate bond market.
Mr. Odundo stated, “The proposed Rapid Mass Visibilities Strategy seeks to introduce an Incubator Board designed to attract entities with a visibility status that may have multiple stakeholder benefits. It is expected that this Board shall host those entities that require restructuring in terms of financial, technical, operational, commercial, strategic, governance, environmental, legal, compliance, policies, procedures and other aspects to move them to the Accelerator Board. This visibility allows capital market stakeholders to engage with the hosted entity for mutually beneficial business purposes”.
Some of the key recommendations from the workshop include; targeted face-to-face engagements with potential issuers of new products through the business incubator, accelerator and listing experience; review of the governance, integrity and transparency around valuation of products, simplified customer journey and an enhanced product development, launch and subscription strategy; a rapid mass visibilities strategy to provide a pipeline for future equity listings and a structured and time-bound privatization programme through the Nairobi Securities (NSE). Further areas for discussion include how to tap into the private-equity space, certainty around applicability of tax-incentives to the industry and the role of licensed market intermediaries in driving product uptake.
The workshop held on Friday June 29, 2018 was the first of a series of round-tables planned for the next quarter of 2018 to guide implementation of business unusual solutions to the challenge of low listings and low product uptake in the capital markets and the Authority will be working very closely with the NSE and KASIB and other market stakeholders, to refine these recommendations, which will be deliberated upon at a convening of the joint- Board of Directors of the organizations and adopted.